SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K/A
AMENDMENT NO. 1
TO
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the year ended December 31, 2001
Commission File No. 0-25680
WaveRider Communications Inc.
(Name of small business issuer in its charter)
Nevada 33-0264030
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
255 Consumer Road, Suite 500
Toronto, Ontario Canada M2J 1R4
(Address of principal executive offices) (Zip Code)
Issuer's telephone number: (416) 502-3200
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act:
Common Stock par value $.001
Common Stock purchase warrants
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
YES X NO ___
Indicate by checkmark if disclosure of delinquent filers pursuant to
item 405 of Regulation S-K is not herein, and will not be contained, to the best
of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. ____ [ X ]
State the aggregate market value of the voting stock held by
non-affiliates of the registrant was approximately $16,930,158 as of March 22,
2002 (based on the closing price for such stock as of March 22, 2002).
As of March 22, 2002, there were 96,585,767 shares of the registrant's
common stock, par value $.001 per share, outstanding.
ITEM 7 OF THE REGISTRANT'S ANNUAL REPORT ON FORM 10-K IS HEREBY AMENDED BY
DELETING THE TEXT THEREOF IN ITS ENTIRETY AND SUBSTITUTING THEREFOR THE
FOLLOWING:
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
Liquidity and Capital Resources.
We have funded our operations for the most part through equity financing and
have had no line of credit or similar credit facility available to us. The
Company's outstanding shares of Common Stock, par value $.001, are traded under
the symbol "WAVC" on the NASDAQ National Market System.
Subsequent to year-end, during March 2002, we raised $4,497,000, less cash
expenses of $134,750, through the sale of 30,096,666 shares common stock
registered by us on our S-3 shelf registration statement.
On December 14, 2001, we completed a shareholders' rights offering selling
10,675,919 units, consisting of one common share and one warrant per unit, for
cash proceeds of $3,132,976 and the extinguishment of debts and warrants, in the
principal amount of $1,017,000, less cash expenses of $935,102 and $50,459 of
expenses paid in warrants.
On October 19, 2001, we sold promissory notes in an aggregate principal amount
of $834,500 and on November 5, 2001, we sold an additional amount of $165,000.
The notes have a one year term and bear interest at an annual rate of 8% plus a
repayment premium of 15%. The notes are secured by a security interest in all
our assets. Also, in connection with the sale of the notes we issued 2,148,925
common stock purchase warrants which are exercisable for a term of five years at
a per share exercise price of $.50 per share.
On December 14, 2001, promissory notes in the principal amount of $567,000 were
returned for cancellation in exchange for the holders participation in the
Shareholders' Rights offering. The holders of the remaining notes may demand
repayment of the notes, including the principal, all accrued interest and the
repayment premium at any time up until maturity.
On June 4, 2001, we raised $2,576,715 through the sale to Crescent International
Ltd. of 30,000 shares of Series D convertible preferred stock and 877,193 Series
N warrants. In connections with this transaction, we issued 61,404 Series M-2
warrants as a finders' fee. We have filed a registration statement (Registration
No. 333-67634) to register the shares of common stock issuable upon conversion
of the Series D convertible preferred stock. This registration statement was
declared effective on September 18, 2001. As of December 31, 2001, Crescent
International Ltd. had converted 1,000 shares of Series D convertible preferred
stock into 317,317 shares of common stock.
During 2001, we also raised $132,000 through the sale of common stock registered
by us on our S-3 shelf registration statement and $194,350 through exercises of
employee stock options and purchases under the Company's employee stock purchase
plan.
In 2000, we raised $16,757,800, net of cash expenses, through the sale of
10,318,753 shares of common stock and 940,740 common stock purchase warrants. Of
those shares of common stock, we issued 6,423,872 shares pursuant to exercises
of warrants, net of 42,478 warrants that were cancelled through a cashless
exercise. The private and public sale of shares and attached warrants accounted
for the issue of 1,437,036 shares of common stock and 940,740 common stock
purchase warrants. We issued 1,693,845 shares of common stock pursuant to
exercises under our employee option plans. In addition, we issued 764,000 shares
of common stock pursuant to the conversion of shares of Series C preferred
stock.
In 2000, we also raised $4,818,000, net of cash expenses, through the sale of
convertible promissory notes and warrants to Capital Ventures International or
CVI. On March 14, 2001, CVI converted notes in the principal amount of
$4,550,000, plus interest, for 3,101,249 shares of our common stock and on
December 14, 2001 converted the balance of the notes through participation in
the Shareholders' Rights offering. Included with the promissory notes were
2,461,538 Series J warrants, originally exercisable at$ 3.35 per share for 5
years and repriced to be exercisable at $2.80, and 5,907,692 Series K warrants,
2
originally exercisable at $2.539 for one year and subsequently repriced at
$2.48. CVI returned 1,500,000 Series J warrants for cancellation as additional
consideration for their participation of the Shareholders' Rights offering, on
December 14, 2001, and all of the Series K warrants expired unexercised. As part
of the agreement, we also issued 25,000 Series M warrants, exercisable at $3.05
for five years, as a finder's fee.
In 1999, we raised $10,909,353, net of cash expenses, through the sale of
11,951,664 shares of common stock and 4,309,629 common stock purchase warrants.
The private and public sale of shares and attached warrants accounted for the
issue of 10,857,766 shares of common stock and 4,309,629 common stock purchase
warrants. We issued 375,440 shares of common stock pursuant to exercises under
our employee option plans, 30,000 shares through the exercise of warrants and
36,000 shares pursuant to the conversion of shares of Series C preferred stock.
In addition, we issued 384,588 shares of common stock pursuant to the
acquisition of Transformation Techniques, Inc. and 267,870 shares of common
stock pursuant to our 1997 employee stock compensation plan.
The details of these offerings were disclosed in previous filings. The proceeds
from these issues have and will continue to be used to continue the on-going
expansion of the operations of the Company and the development of the
WaveRider(R) product families.
General
We incurred a net loss for the year ended December 31, 2001, of $21.5 million on
revenues of $7.8 million, compared to a net loss for the year ended December 31,
2000, of $31.5 million on revenues of $4.1 million and a net loss for the year
ended December 31, 1999 of $7.4 million on revenues of $1.7million. Our reported
results for 2001 included non-cash expenses in the amount of $10.8 million (2000
- - $17.9 million, 1999 - $1.2 million).
On September 24, 2001, we reduced our staff by 56% and our executive staff
waived all salaries, bonuses and other cash payments and other key management
personnel agreed to a 25% pay reduction for the period October 1, 2001 until
December 14, 2001, the date the shareholder rights offering was completed.
In March 2002, we announced that we will be shutting our Calgary facility and
consolidating Research and Development into our Toronto location. It is
anticipated that the integration will improve communications and efficiency
within the organization and as a result increase our ability to assist customers
to plan, install and deploy our LMS products.
Our cash balance decreased to $2.2 million compared to $7.7 million at December
31, 2000 and $5.5 million at December 31, 1999. See "Liquidity and Capital
Resources" for fuller discussion of our equity financings.
Revenue
Total revenue increased 89% in 2001, compared to 2000, primarily due to the
commercial release of our LMS3000 network system and to the continued expansion
of our sales and marketing. Revenues increased 141% in 2000, compared to 1999,
primarily due to the commercial release of our LMS 2000 network system and to
the expansion of our sales and marketing.
Cost of Product and Internet Sales
We recorded a gross margin of $1,847,522 in 2001 compared to a gross margin
deficiency in 2000 of $1,106,056 and a gross margin of $421,230 in 1999. Cost of
Product and Internet Sales in 2000 was adversely affected by the $1,568,739
write-off of TTI technology related inventories and warranty provisions.
Costs for service sales include third party service contracts and direct
purchased costs for provision of the services. The costs do not include salaries
and overheads for our employees or indirect costs of providing services. These
costs are included in selling, general and administrative expenses.
3
Over the past year, we have continued to see pricing pressures on our NCL
product line as telecom spending remains weak. In addition, with the
introduction of the new non-line of sight products, the EUM3000 modems,
economies of scale and design simplification had not been reached during 2001.
These factors combined to result in lower margins than would be expected over
the product lives.
Expenses
Selling, general and administrative expenses, excluding non-cash stock related
charges, declined to $8,239,747 in 2001 (2000 - $8,605,887, 1999 - $4,634,505).
In September 2001, we reduced our staff by 56%, our executive staff waived all
salaries, bonuses and other cash compensation for a period from October 1 to
December 14 and other senior managers accepted a 25% pay decrease for the same
period. We anticipate that we will continue to curtail expenditures through
2002. During 2000, we expanded our sales operations in the United States and
internationally and, in the fourth quarter, acquired ADE Technologies in
Australia. The additions were put in place to provide us with the trained sales
and support representatives required to sell and service the LMS network
products.
We moved to a level of sustaining engineering in the second half of 2001 for our
NCL and LMS product families, with Research and Development costs, excluding
stock related expenses, depreciation and amortization, in 2001 amounting to
$4,471,567 (2000 -$6,127,360, 1999 - $2,319,707). Further, in early 2002, we
announced that we intend to close our Calgary facility during the second half of
2002 and transition the operations to our Toronto location. We anticipate that
we will continue to maintain our 2001 level expenditures through 2002 as we
consolidate our Research and Development activities into our Toronto location.
The final costs of this transition have not been determined but due to the
relatively long transition period we believe that costs will not have a
significant impact on our ongoing expense levels.
When the current operations of the WaveRider were established in May 1997, the
initial founders chose to put their shares into an escrow agreement, which would
only release the shares to them upon achievement of certain milestones. This
display of commitment to the Company was viewed as necessary to allow us to
raise the funds needed to develop our products and markets. In September
2001, in recognition of the ongoing commitment of the founders, the Board of
Directors authorized a two year extension of the escrow agreement, as was
contemplated in the original agreement. With the extension of the escrow
agreement, any charges resulting from future releases in escrow shares will be
charged directly to the consolidated statement of loss and not recorded as
goodwill.
As the Company reached each of the milestones under the escrow agreement, we
released a specific percentage of the shares and the value of those shares, at
the time of release was included in goodwill or compensation expense. Depending
on the price of the common shares at the time of release the value assigned
varied dramatically. During 2001, we released 2,250,000 common shares from the
escrow agreement (2000 - 900,000, 1999 - 450,000). This resulted in a charge of
$629,000 to compensation expense (2000 - $ 712,500, 1999 - nil) and an increase
of goodwill in the amount of $2,201500 (2000 - $2,493,750, 1999 - $534,375). As
of December 31, 2001, we had achieved the first three performance events in the
escrow agreement resulting in the release of 3,600,000 shares of Common Stock or
40% of the escrow shares. We expect that the remaining 5,400,000 shares will be
released from escrow during 2002 and the value of the shares will be recorded at
the date the respective performance events occur. The release of the escrow
shares and the resulting goodwill has resulted in a significant increase in
depreciation and amortization expense to $3,533,438 in 2001 (2000 - $2,164,638,
1999 - $736,875).
Our financing activities in 2001 have resulted in a significant number of
non-cash accounting charges amounting to $5,410,846. This resulted in financing
expenses increasing to $5,493,373 in 2001 (2000 - $274,347, 1999 - $184,371).
During 2000, the extension of our 1997 Option Plan resulted in non-cash
accounting charges in the amount of $11,099,858.
4
Supplementary financial information
Three Months Ended
March June September December
-----------------------------------------------------------
Fiscal 2001
Net revenues $ 1,830,403 $ 2,473,418 $ 1,689,209 $ 1,810,987
Gross profit 441,001 834,674 437,090 134,757
Loss before extraordinary item (8,984,708) (5,243,205) (4,489,006) (2,577,731)
Extraordinary item - - - (198,300)
Net loss (8,984,708) (5,243,205) (4,489,006) (2,776,031)
Loss before extraordinary item
per common share (0.16) (0.10) (0.07) (0.04)
Weighted average shares outstanding 55,757,444 60,240,772 61,365,893 63,609,949
Fiscal 2000
Net revenues $ 806,152 $ 715,620 $ 1,206,854 $ 1,404,366
Gross profit 158,668 109,245 83,312 (1,457,281)
Loss before extraordinary item (2,544,861) (5,071,757) (15,758,357) (8,097,640)
Net loss (2,544,861) (5,071,757) (15,758,357) (8,097,640)
Net loss per common share (0.05) (0.09) (0.29) (0.15)
Weighted average shares outstanding 49,263,629 53,434,117 54,992,503 55,113,848
CRITICAL ACCOUNTING POLICIES
Management's Discussion and Analysis of Financial Condition and Results of
Operations discusses the Company's consolidated financial statements, which have
been prepared in accordance with accounting principles generally accepted in the
United States of America. The preparation of these financial statements requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and the disclosure of contingent assets and liabilities
at the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period.
On an ongoing basis, management evaluates its estimates and judgments, including
those related to bad debts, inventories, investments, intangible and other
long-lived assets, income taxes, warranty obligations, product returns,
restructuring costs, litigation and contingencies. Management bases its
estimates and judgments on historical experience, current economic and industry
conditions and on various other factors that are believed to be reasonable under
the circumstances. This forms the basis for making judgments about the carrying
values of assets and liabilities that are not readily apparent from other
sources. Actual results may differ from these estimates under different
assumptions or conditions. Management believes the following critical accounting
policies affect its more significant judgments and estimates used in the
preparation of its consolidated financial statements.
Allowance for Losses on Receivables
The Company has historically provided financial terms to certain customers in
connection with purchases of the Company's products. Financial terms, for
credit-approved customers, are generally on a net 30 day basis.
Total trade receivables at December 31, 2001 and 2000 were $1,370,805 and
$2,453,565, respectively, with an allowance for losses on these receivables of
$635,410 and $591,877, respectively.
Management periodically reviews customer account activity in order to assess the
adequacy of the allowances provided for potential losses. Factors considered
include economic conditions, collateral values and each customer's payment
history and credit worthiness. Adjustments, if any, are made to reserve balances
following the completion of these reviews to reflect management's best estimate
of potential losses.
5
Inventory Valuation Reserves
The Company records valuation reserves on its inventory for estimated
obsolescence or unmarketability. The amount of the writedown is equal to the
difference between the cost of inventory and the estimated market value based
upon assumptions about future demand and market conditions. In addition to
normal excess and obsolescence provisions for inventory the Company recorded
charges for abandonment of acquired TTI technology in 2000. As a result, the
Company recorded inventory write-downs and additional warranty provisions of
$1,568,739 in 2000.
Net Inventories consisted of the following:
December 31 2001 2000
--------------------------------------------------------
Finished goods $ 1,329,090 $ 1,278,580
Raw materials 681,769 1,373,018
------------------------------
2,010,859 2,651,598
Less inventory reserves (327,644) (458,096)
------------------------------
$ 1,402,703 $ 2,193,502
============================
The Company provides its contract manufacturers with ongoing production
forecasts to enable them to forecast and procure required parts. Under the terms
of the Agreements with the contract manufacturers, the Company has committed to
assume liability for all parts required to manufacture the Company's forecast
products for the next 13 weeks and all final assembly costs for the forecast
products for the next 4 weeks, on a rolling basis.
The Company balances the need to maintain strategic inventory levels to ensure
competitive lead times with the risk of inventory obsolescence due to rapidly
changing technology and customer requirements. If actual future demand or market
conditions are less favorable than those projected by management, additional
inventory write-downs may be required.
Valuation of Investments and Long-Lived Assets
The Company assesses the impairment of investments and long-lived assets, which
includes identifiable intangible assets, goodwill and plant and equipment
whenever events or changes in circumstances indicate that the carrying value may
not be recoverable. Factors considered important which could trigger an
impairment review include the following:
o underperformance relative to expected historical or projected future
operating results;
o changes in the manner of use of the assets or the strategy for our
overall business;
o negative industry or economic trends;
o declines in stock price of an investment for a sustained period; and
o our market capitalization relative to net book value.
When the Company determines that the carrying value of intangible assets,
goodwill and long-lived assets may not be recoverable an impairment charge is
recorded. Impairment is measured based on a projected discounted cash flow
method using a discount rate determined by our management to be commensurate
with the risk inherent in our current business model or prevailing market rates
of investment securities, if available.
In late 2000, management determined that various long-lived and intangible
assets, relating to the Company's acquisition of Transformation Techniques, Inc.
during 1999, had been impaired and impairment charges were recorded totaling
$1,028,430 in 2000. In September 2001, the Company announced a restructuring
plan, which included the reduction of approximately half of the staff in
WaveRider Communications (Australia) Pty Ltd. As a result, the Company wrote
down the acquired labor force, resulting from the acquisition of WaveRider
Communications (Australia) Pty Ltd. in the amount of $155,000.
In 2002, Statement of Financial Accounting Standards ("SFAS") No. 142, "Goodwill
and Other Intangible Assets" became effective and as a result, the Company will
cease to amortize approximately $4 million of unamortized goodwill. The Company
had recorded approximately 2.4 million of amortization on these amounts during
2001.
6
In lieu of amortization, the Company is required to perform an initial
impairment review of our goodwill in 2002 and an impairment review at least
annually thereafter. The Company has completed its review and does not expect to
record an impairment charge based on these results.
At December 31, 2001 the net value of these assets were as follows:
Property, plant and equipment $ 1,671,088
Notes receivable 32,801
Acquired labor force 98,949
Goodwill 3,898,528
------------
Total $ 5,701,366
===========
The Company cannot predict the occurrence of future impairment
triggering events nor the impact such events might have on these reported asset
values. Such events may include strategic decisions made in response to the
economic conditions relative to product lines, operations and the impact of the
economic environment on our customer base.
ITEM 12 OF THE REGISTRANT'S ANNUAL REPORT ON FORM 10-K IS HEREBY AMENDED BY
DELETING THE TEXT THEREOF IN ITS ENTIRETY AND SUBSTITUTING THEREFOR THE
FOLLOWING:
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The following tables set forth, as of March 21, 2002, the stock ownership of
each officer and director of the Company, of all officers and directors of the
Company as a group, and of each person known by the Company to be a beneficial
owner of 5% or more of its Common Stock, $0.001 par value. Except as otherwise
noted, each person listed below is the sole beneficial owner of the shares and
has sole investment and voting power with respect to such shares. No person
listed below has any option, warrant or other right to acquire additional
securities of the Company, except as may otherwise be noted. The Company had
96,585,767 shares of Common Stock issued and outstanding as of such date, which
numbers do not include any options or warrants issued and outstanding.
Name and Address of Amount of Common % of Common Stock
Beneficial Owner Stock Beneficially Owned (1) Outstanding
- ----------------------------------------------------------------------------------------------------------
D. Bruce Sinclair, CEO, President, Director (2) 4,369,555 4.43%
Cameron A. Mingay, Secretary, Director (3) 224,000 0.23%
Gerry Chastelet, Director (4) 175,000 0.18%
John Curry, Director (5) 145,000 0.15%
Dennis Wing, Director (4) 125,000 0.13%
Charles Brown, Vice President, Sales & Marketing (6) 763,963 0.79%
Jim Chinnick, Vice President, Engineering (7) 479,823 0.49%
T. Scott Worthington, Vice-President & CFO (8) 992,136 1.02%
------------ -------
All Directors and Executive Officers (8 persons) 7,274,477 7.18%
------------ --------
Crescent International Limited (9) 13,692,010 12.42%
Clarendon House
2 Church Street, Hamilton H 11, Bermuda
(1) Beneficial ownership is determined in accordance with the rules of
the Securities and Exchange Commission (the "SEC") that deem shares to be
beneficially owned by any person who has voting or investment power with
respect to such shares. Unless otherwise indicated below, the persons and
entities named in the table have sole voting and sole investment power with
respect to all shares beneficially owned, subject to community property
laws where applicable.
7
Shares of Common Stock subject to options that are currently exercisable or
exercisable within 60 days of March 21, 2002 are deemed to be outstanding and to
be beneficially owned by the person holding such options for the purpose of
computing the percentage ownership of such person but are not treated as
outstanding for the purpose of computing the percentage ownership of any other
person.
(2) Consists of 1,090,611 shares of Common Stock, 1,200,000 shares, which are
subject to an Escrow Agreement, dated March 16, 1998, as amended September 27,
1999, 505,611 shares issuable upon exercise of warrants and 1,573,333 shares
issuable upon exercise of options that are currently exercisable or exercisable
within 60 days of March 21, 2002.
(3) Consists of 25,000 shares of Common Stock, 46,500 shares issuable upon
exercise of warrants and 152,500 shares issuable upon exercise of options that
are currently exercisable or exercisable within 60 days of March 21, 2002.
(4) Consists of shares issuable upon exercise of options that are currently
exercisable or exercisable within 60 days of March 21, 2002.
(5) Consists of 20,000 shares of Common Stock and 125,000 shares issuable upon
exercise of options that are currently exercisable or exercisable within 60 days
of March 21, 2002.
(6) Consists of 75,628 shares of Common Stock, 126,402 shares issuable upon
exercise of warranfts and 561,933 shares issuable upon exercise of options that
are currently exercisable or exercisable within 60 days of March 21, 2002.
(7) Consists of 43,090 shares of Common Stock, 74,400 shares issuable upon
exercise of warrants and 362,333 shares issuable upon exercise of options that
are currently exercisable or exercisable within 60 days of March 21, 2002.
(8) Consists of 75,001 shares of Common Stock, 126,402 shares issuable upon
exercise of warrants and 790,733 shares issuable upon exercise of options that
are currently exercisable or exercisable within 60 days of March 21, 2002.
(9) Consists of 13,692,010 shares of Common Stock issuable upon conversion of
21,250 shares of 5% Series D convertible non-voting Preferred Stock which are
currently convertible. The conversion price is based on 95% of the average of
the 3 lowest consecutive closing bid prices for the 22 trading days prior to
March 21, 2002.
ITEM 13 OF THE REGISTRANT'S ANNUAL REPORT ON FORM 10-K IS HEREBY AMENDED BY
DELETING THE TEXT THEREOF IN ITS ENTIRETY AND SUBSTITUTING THEREFOR THE
FOLLOWING:
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
We incurred legal expenses in excess of $60,000 from Cassels Brock & Blackwell
LLP. Cameron A. Mingay, one of our directors, is a partner at this law firm.
There were no other transactions or series of transactions, for the fiscal year
ended December 31, 2001, to which the Company is a party, in which the amount
exceeds $60,000 and in which, to the knowledge of the Company, any director,
executive officer, nominee, 5% or greater stockholder, or any member of the
immediate family of any of the foregoing persons, have or will have any direct
or indirect material.
SIGNATURES
In accordance with Section 13 or 15 (d) of the Securities Exchange Act
of 1934, the Registrant has caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Date: June 3, 2002 WAVERIDER COMMUNICATIONS INC.
By: /s/ D. Bruce Sinclair
-------------------------------
D. Bruce Sinclair, President,
Chief Executive
Officer and Director
8